Friday, November 13, 2009

TOP STORY >> Four cities out of compliance

Sherwood, Cabot, Beebe and Lonoke had “significant deficiencies” in their 2007 city budgets according to the state’s Division of Legislative Audit.

Among problems found were extra paychecks, expenditures exceeding income and financial support for nonprofit groups.

The auditors review all city budgets and present their findings to the Legislative Joint Auditing Committee which accepts the findings and forwards the report to the cities.

Jacksonville’s budget is reviewed by an independent auditor and the findings are forwarded to the state. The city had no deficiencies in 2007.

The state auditors have completed their work on all the 2007 budgets and are now looking at school districts’ financial reports before auditing 2008 city budgets.

In the letter of findings to Sherwood, auditor June Barron found two “significant deficiencies” and a number of other problems.

Barron’s first concern was that financial duties weren’t distributed among city employees. “The clerk/treasurer did not segregate these duties to sufficiently reduce the risk of fraud or error and properly safeguard the city’s assets, because of limited financial resources. We recommend that the financial accounting duties in this office be segregated among employees to the extent possible.”

The city was also cited for not having internal controls or oversight to prevent or detect illegal transactions.

Barron wrote that “unauthorized use of the clerk/treasurer’s electronic access to the city’s general fund bank account resulted in the improper transfer of $219,913 on Dec. 5, 2008.” Only $16,000 of that money has been recovered. The theft case continues to be investigated by the state police and the FBI.

The city has told the auditors that both deficiencies have been corrected.

The auditors also stated that they found financial procedures in the city clerk/treasurer office, district court clerk office and in the police chief’s office were in compliance with state laws, but their was noncompliance in the mayor’s office.

In 2007, the city had three mayors, which may have contributed to the problems. Danny Stedman was the mayor from Jan. 1 to April 9 when he resigned. Former Mayor Bill Harmon became interim mayor from April 11 to July 31. Mayor Virginia Hillman took over Aug. 1.

The letter said Sherwood, in 2007, contributed $7,165 to a non-profit corporation, an apparent violation of state law. Barron said that state law states, “No…city…shall…appropriate money for, or loan its credit to any corporation, association, institution or individual.”

In a letter to Cabot, Barron found two “significant deficiencies” and a number of minor violations and concerns.

Cabot was cited for not dispersing financial duties to a number of city employees. When too few employees handle all receipts, deposits, disbursing and recording, it allows for the possibility of fraud or theft.

The audit also said the city’s financial records “contained omissions/errors.” The section titled “Other Funds in the Aggregate” contained misstatements for cash and fund balance in the amounts of $120,361 and $478,121 because of failure to record investment activity.

Two other amounts – $1,197,487 and $468,364 – in that category were also called misstatements because all receipt and disbursement activity was not recorded.

Auditors found noncompliance of state financial regulations in the mayor’s office, the clerk/treasurer office and the office of the parks and recreation director.

In the mayor’s office, the auditors found that the total general fund and street fund disbursements exceeded appropriations by $97,748 and $40,286, respectively, in violation with state law.

The parks and recreation bookkeeper Sarah Rye, according to auditors, issued herself extra paychecks totaling $3,085. The police department investigated and sent the results on to the prosecuting attorney, according to the auditor’s letter.

In a letter to Lonoke, Barron found one “significant deficiency” and numerous other problems.

Like Sherwood and Cabot, the deficiency had to do with not dispersing financial duties among its employees. City officials have told auditors that they will segregate the duties as much as possible.

Auditors also found the mayor’s office to be out of compliance with state financial regulations.

The city was also in apparent violation of state regulations because it provided free office space in a city-owned building to the chamber of commerce.

The council also approved and the city paid $20,682 in 2008 and $11,784 in 2007 to cover the chamber’s dues, building maintenance, utilities and promotional material.

The city also contributed $3,000 to a nonprofit group in 2007 and 2008.

Lonoke also allowed the chamber to rent out space in a city-owned building and keep the rental fees.

The auditors said the chamber needs to reimburse the city.

Auditors also found a “significant discrepancy” in Beebe’s budgeting procedures in 2007. It was the same one found in the other cities — too few people handling financial duties.

The report did say that Beebe city officers were all in compliance with financial reporting laws.